26 U.S.C. § 1260
If the taxpayer has gain from a constructive ownership transaction with respect to any financial asset and such gain would (without regard to this section) be treated as a long-term capital gain-
If any gain is treated as ordinary income for any taxable year by reason of subsection (a)(1), the tax imposed by this chapter for such taxable year shall be increased by the amount of interest determined under paragraph (2) with respect to each prior taxable year during any portion of which the constructive ownership transaction was open. Any amount payable under this paragraph shall be taken into account in computing the amount of any deduction allowable to the taxpayer for interest paid or accrued during such taxable year.
The amount of interest determined under this paragraph with respect to a prior taxable year is the amount of interest which would have been imposed under section 6601 on the underpayment of tax for such year which would have resulted if the gain (which is treated as ordinary income by reason of subsection (a)(1)) had been included in gross income in the taxable years in which it accrued (determined by treating the income as accruing at a constant rate equal to the applicable Federal rate as in effect on the day the transaction closed). The period during which such interest shall accrue shall end on the due date (without extensions) for the return of tax imposed by this chapter for the taxable year in which such transaction closed.
For purposes of paragraph (2), the applicable Federal rate is the applicable Federal rate determined under section 1274(d) (compounded semiannually) which would apply to a debt instrument with a term equal to the period the transaction was open.
Any increase in tax under paragraph (1) shall not be treated as tax imposed by this chapter for purposes of determining-
For purposes of this section-
The term "financial asset" means-
For purposes of paragraph (1), the term "pass-thru entity" means-
For purposes of this section-
The taxpayer shall be treated as having entered into a constructive ownership transaction with respect to any financial asset if the taxpayer-
This section shall not apply to any constructive ownership transaction if all of the positions which are part of such transaction are marked to market under any provision of this title or the regulations thereunder.
A person shall be treated as holding a long position under a notional principal contract with respect to any financial asset if such person-
The term "forward contract" means any contract to acquire in the future (or provide or receive credit for the future value of) any financial asset.
For purposes of this section, in the case of any constructive ownership transaction with respect to any financial asset, the term "net underlying long-term capital gain" means the aggregate net capital gain that the taxpayer would have had if-
The amount of the net underlying long-term capital gain with respect to any financial asset shall be treated as zero unless the amount thereof is established by clear and convincing evidence.
Except as provided in regulations prescribed by the Secretary, if a constructive ownership transaction is closed by reason of taking delivery, this section shall be applied as if the taxpayer had sold all the contracts, options, or other positions which are part of such transaction for fair market value on the closing date. The amount of gain recognized under the preceding sentence shall not exceed the amount of gain treated as ordinary income under subsection (a). Proper adjustments shall be made in the amount of any gain or loss subsequently realized for gain recognized and treated as ordinary income under this subsection.
The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this section, including regulations-
26 U.S.C. § 1260
EDITORIAL NOTES
AMENDMENTS2007-Subsec. (c)(2)(G). Pub. L. 110-172 substituted "subsection (d)" for "subsection (e)" and inserted "and" at end. 2004-Subsec. (c)(2)(H) to (J). Pub. L. 108-357 redesignated subpar. (J) as (H) and struck out former subpars. (H) and (I), which included foreign personal holding company and foreign investment company (as defined in section 1246(b)) within definition of "pass-thru entity".
STATUTORY NOTES AND RELATED SUBSIDIARIES
EFFECTIVE DATE OF 2004 AMENDMENT Amendment by Pub. L. 108-357 applicable to taxable years of foreign corporations beginning after Dec. 31, 2004, and to taxable years of United States shareholders with or within which such taxable years of foreign corporations end, see section 413(d)(1) of Pub. L. 108-357, set out as an Effective and Termination Dates of 2004 Amendments note under section 1 of this title.
EFFECTIVE DATE Pub. L. 106-170, §534(c), Dec. 17, 1999, 113 Stat. 1934, provided that: "The amendments made by this section [enacting this section] shall apply to transactions entered into after July 11, 1999."
- Secretary
- The term "Secretary" means the Secretary of the Treasury or his delegate.
- corporation
- The term "corporation" includes associations, joint-stock companies, and insurance companies.
- person
- The term "person" shall be construed to mean and include an individual, a trust, estate, partnership, association, company or corporation.
- stock
- The term "stock" includes shares in an association, joint-stock company, or insurance company.
- taxable year
- The term "taxable year" means the calendar year, or the fiscal year ending during such calendar year, upon the basis of which the taxable income is computed under subtitle A. "Taxable year" means, in the case of a return made for a fractional part of a year under the provisions of subtitle A or under regulations prescribed by the Secretary, the period for which such return is made.
- taxpayer
- The term "taxpayer" means any person subject to any internal revenue tax.
- transaction
- The term "transaction" includes a series of transactions.